Walmart establishes new rules for China

Walmart Stores laid down the law for suppliers it does business with in China at a first-of-its-kind meeting Wednesday focused on sustainability that involved more than 1,000 suppliers.

The company, third on the HCN Top 500 Scoreboard with 2007 home channel sales of some $25 billion, announced it would implement a new supplier agreement that requires factories to certify compliance with laws and regulations that will be phased in beginning with suppliers in China in January 2009 and then expanded to suppliers globally by 2011. The company also said by 2009 it will require all direct import suppliers and suppliers of private label and non-branded product to provide the name and location of every factory they use. In addition, Walmart will require the suppliers it buys from directly to source 95 percent of their production from factories that receive the highest ratings on environment and social practices by 2012.

From an energy reduction and resource utilization standpoint, Walmart is applying some of the objectives already established in the United States to its Chinese retail operations. For example, the company plans to design and open a new store prototype that uses 40 percent less energy and reduce energy use at existing stores by 30 percent by 2010. The company also plans to invest in hardware and systems and develop best practices that will enable it to reduce water use by half during the next two years.

The company’s goal is to become the most environmentally responsible retailer in China, a country where it has operated stores for nearly 15 years and now has more than 200 stores. Walmart and its suppliers collectively are the largest exporters of goods manufactured in China, which means the company is uniquely positioned to act as a change agent in a country where lax environmental controls, limited regulations and low wages have long been regarded as key reasons why China rose to become a global manufacturing powerhouse.

“I firmly believe that a company that cheats on overtime and on the age of its labor, that dumps its scraps and chemical in our rivers, that does not pay its taxes or honor its contracts, will ultimately cheat on the quality of its products,” said Walmart president and CEO Lee Scott. “And cheating on the quality of products is the same as cheating on customers. We will not tolerate that at Walmart.”

In prepared remarks, Scott went on to add that Walmart expects suppliers to meet strict social and environmental standards, be open to rigorous audits and to publicly disclosed all appropriate information.

“If a factory does not meet these requirements, they will be expected to put forth a plan to fix any problems. If they still do not improve, they will be banned from making products for Walmart,” Scott said.